California passes the most stringent carbon emission caps in the nation. What …

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As expected, the California legislature passed a bill yesterday aimed at curbing carbon emissions, targeting a 25 percent reduction by the year 2020. Governor Schwarzenegger has promised to sign the bill. An AP report indicates that California is also seeking to influence nearby states by requiring out-of-state utilities that do business with the state government to also reduce their emissions. This action comes in the wake of California's ongoing attempt to regulate carbon emissions by automobiles, an effort that is being matched by a number of different states even as lawsuits by auto makers seek to block it.

As California moves to the forefront of efforts to limit carbon emissions, it is notable that it is also moving past the scientific debate over the evidence for human-driven climate change. As quoted in the New York Times, the head of the utility that serves Northern California responded to a meeting with climate scientists by saying, "The evidence in the scientific community is lopsided ? it?s not even close. Climate change is a problem." Instead, the location of the Times report in the business section makes clear that climate change is becoming a business and legal issue.

Business-wise, it's hard to overstate the importance of California; as an independent economy, its output is similar to that of France. It's also a very diverse economy, given that California serves as the base of high-tech and biotech, maintains traditional agricultural and manufacturing industries, and its ports act as a transit hub for international trade. The question becomes whether this diverse economic strength can be maintained in the face of the impending carbon cuts. Some have voiced concerns that California's long-time emphasis on energy conservation has already extracted most of the easy efficiencies from the state's energy use. Critics of the legislation suggest that many businesses will simply relocate elsewhere as, outside of the northeast, few states have followed California's lead in regulating carbon output. They also fear that it will accelerate the relocation of businesses overseas. At the extremes, conservative economic groups suggest California has chosen the road to poverty. The Times quotes a director at the Competitive Enterprise Institute as saying, "We cannot reduce our carbon emissions by making ourselves poorer. That is not acceptable in a democratic society. It might work in North Korea, but it will not work here."

But the high-tech industry as a whole has supported the legislation, in part due to expectations that new energy and efficient-use needs will drive business its way. Many predict that the startup culture and venture capital concentration will make California-based businesses the best placed to take advantage of a changing energy economy. Agriculture, dependent upon the climate-sensitive snow pack in the state, is also generally supportive. More generally, it could also be argued that California is simply accelerating inevitable change; had its auto emissions rules taken effect a decade ago, the American auto industry would probably be in better shape than it currently finds itself in. The complex economic arguments for and against largely emphasize that, should its legislative efforts withstand legal scrutiny, California may act as a test case for what will happen in the global economy as some countries enforce carbon limits while others refrain.

That legal scrutiny, in the form of a lawsuit by car makers, has blocked the enforcement of California's auto emissions rules since they were passed in 2004. Similar suits should be expected over the new legislation. Such legal actions may receive substantial support from the federal government as, on these issues, the generally pro-states'-rights administration is siding with the auto makers. In doing so, they argue that different environmental regulations in different states places an undue burden on interstate commerce. It is not currently clear when these issues will be resolved, and how much of California's goals will remain intact when they are.

Win or lose, it's clear that California, home to a sizable fraction of the nation's population and the world's economy, has decided that it needs to act. Although arguments over the science of climate change will undoubtedly rage on, this suggests that they are heading towards irrelevancy, as the scientific consensus is being adopted into policy changes despite lingering disputes. Should carbon-limiting legislation clear the legal hurdles, the result may be one of the largest changes in public and economic policy to ever be driven by science.